Massive revamp of MoD purchase procedure soon

This sounds good. Something that has been discussed on DFI at some point or the other.

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NEW DELHI: The government is set to remove software and consultancy services out of defence offsets in the wake of Italian investigators finding that middlemen involved in the VVIP helicopter scandal routed kickbacks into India through a phony software contract.

The government is also finalizing a massive overhaul of defence procurement procedure, providing first opportunity in all contracts to Indian companies, including private sector, while placing procurement from foreign suppliers as the last option.

Sources have told TOI that the ministry of defence has decided to remove software services and most consultancies out of products and services that can be listed as offsets.

Under Defence Procurement Procedure, in any purchase over Rs 300 crore from a foreign company 30 percent of the contract value has to be ploughed back into India through offsets. Offsets are meant to improve indigenous manufacturing, engineering and technological base as well as to route investments into the domestic industry. Offsets are also adopted in foreign procurement in other sectors too.

In its list of about a dozen offset partners, AgustaWestland, which supplied the VVIP helicopters under the controversial 2010 contract, listed IDS Infotech as a partner. It has emerged in Italian court filings that middleman Guido Haschke had got AgustaWestland to source phony software from IDS Infotech to move a few million euros into India in the name of software outsourcing. And more payment was to be routed to IDS Infotech as an offset partner.

Sources said IDS Infotech ploy was the key reason for the decision to look at options available under offsets. "Software and consultancies are difficult to value. The value of offsets should verifiable and credible," one source explained the move.

The proposed amendments would result in defence offsets being mostly clustered around engineering services that are universally quantifiable.

Along with the change in offsets, the MOD is also set to approve a proposal to put Buy and Make (Indian) as the top category for procurement. This would be a historic shift from existing priority given to acquisitions from foreign companies, which today accounts for 70 percent of purchases.

Indications are that the Defence Procurement Procedure would be amended to put Buy and Make (Indian) category as the most preferred procedure for procurement. Under this category, the procurement would be made from an Indian vendor, including a private Indian company that forms a JV or even has a production arrangement with a foreign firm. Under Buy and Make (Indian) there must be a minimum of 50 percent indigenous content.

The decision should open up massive contracts for Indian private sector, and would also challenge the virtual monopoly enjoyed by foreign vendors and Indian defence public sector units in defence contracts. Presently, almost 70 percent of Indian defence purchases are from foreign companies, while most of the remaining is procured from Indian public sector units and ordnance factories.

Indian private sector only gets a very limited number of defence contracts. During the last financial year, the entire amount meant to fund development of prototypes under Make (India) category was left unused. None of the major contracts, such as Battlefield Management System and Tactical Communication System, under Make (India) category, in which Indian private sector and public sector have equal opportunity, have made much progress beyond preliminary stage.

With the only primary condition being that manufacturing of the equipment should be in India under Buy and Make (Indian), it would be easy for Indian companies to go abroad shopping for JV partners or technologies to start production in India.

The proposals have already been discussed in a few rounds of discussions and is set to be approved by the Defence Acquisition Council headed by AK Antony in the next few weeks, sources said.

Next up, Requirements should be floated to all Indian defence companies and make them compete to come up with the new product. Development funding can be done by the govt with te winner getting production contract.

Next up, Requirements should be floated to all Indian defence companies and make them compete to come up with the new product. Development funding can be done by the govt with te winner getting production contract.

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Aleast now they shud stop earning money and go for indigenous products ,,,, our DRDO will only be capable of good products when pressure is on them,,,,